Present Value of $1 PV of Annuity of $1

Amortization of Discount

Stacy Company issued five-year, 10% bonds with a face value of $11,000 on January 1, 2017. Interest is paid annually on December 31. The market rate of interest on this date is 12%, and Stacy Company receives proceeds of $10,207 on the bond issuance.

Required:

Refer to the tables above for present value factors.

1. Prepare a five-year table to amortize the discount using the effective interest method.

Round the last calculation as needed to bring bond to value. If required, round all calculations to the nearest dollar. Enter all amounts as positive numbers.

Stacy Company
Discount Amortization
Effective Interest Method of Amortization
Date	Cash Interest 10%	Interest Expense 12%	Discount Amortized	Carrying Value
1/01/17				fill in the blank
12/31/17	fill in the blank	fill in the blank	fill in the blank	fill in the blank
12/31/18	fill in the blank	fill in the blank	fill in the blank	fill in the blank
12/31/19	fill in the blank	fill in the blank	fill in the blank	fill in the blank
12/31/20	fill in the blank	fill in the blank	fill in the blank	fill in the blank
12/31/21	fill in the blank	fill in the blank	fill in the blank	fill in the blank
Totals	fill in the blank	fill in the blank	fill in the blank

2. What is the total interest expense over the life of the bonds? cash interest payment? discount amortization?

Total interest expense	fill in the blank
Cash interest payment	fill in the blank
Discount amortization	fill in the blank

3. Identify and analyze the effect of the payment of interest and the amortization of discount on December 31, 2019 (the third year).

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

fill in the blank

fill in the blank

fill in the blank

fill in the blank

fill in the blank

fill in the blank

Determine the balance sheet presentation of the bonds for December 31, 2019.

Stacy Company
Balance Sheet (Partial)
December 31, 2019
	$fill in the blank
	fill in the blank
	$fill in the blank